WEBVTT - Interview With Charles Rotblut: Masters in Business (Audio) 0:00:03.240 --> 0:00:07.560 This is Masters in Business with Barry Ridholes on Bloomberg Radio. 0:00:08.560 --> 0:00:11.840 This week on Masters in Business on Bloomberg Radio, my 0:00:12.039 --> 0:00:16.360 guest is Charlie Rotblood. Charlie is vice president at the 0:00:16.400 --> 0:00:21.200 American Association of Individual Investors and he not only is 0:00:21.239 --> 0:00:25.880 the editor who oversees the a AII Journal, but also 0:00:26.200 --> 0:00:31.880 conducts a number of surveys, sentiment surveys of individuals which 0:00:32.000 --> 0:00:35.239 have been in existence for gee, they go back to 0:00:36.880 --> 0:00:41.240 it's unusual to find a sentiment survey with the same 0:00:41.680 --> 0:00:46.640 methodology asking questions of individual investors. Going back that far, 0:00:47.159 --> 0:00:51.160 we speak about the Weekly Sentiment Survey, which I find 0:00:51.200 --> 0:00:54.680 a little noisy, but it extremes it certainly can be useful, 0:00:55.280 --> 0:00:59.720 and the A A II Ascid Allocation Survey, which I 0:00:59.760 --> 0:01:04.119 find to be tremendously useful. It has pretty much marked 0:01:04.160 --> 0:01:10.800 the bottom of every major UH market correction since UM 0:01:10.840 --> 0:01:14.440 as well as marked the top at at major highs. 0:01:14.480 --> 0:01:16.400 And and it was one of the things that were 0:01:16.480 --> 0:01:20.640 screaming up and down late early two thousand that hey 0:01:20.720 --> 0:01:26.360 market have gotten U way too way too uh frothy, 0:01:26.400 --> 0:01:30.480 and that investors are wildly overweight equities relative to their 0:01:30.520 --> 0:01:35.280 historic averages. UH. He's an interesting character. He he does 0:01:35.640 --> 0:01:39.800 a number of fascinating things for a AII. If you're 0:01:40.000 --> 0:01:44.120 interested in what individual investors are doing, thinking, saying, and 0:01:44.160 --> 0:01:49.160 how they're allocating their portfolios, I think you'll enjoy this podcast. So, 0:01:49.240 --> 0:01:53.720 with no further ado, my interview with a AI eyes 0:01:54.240 --> 0:02:01.280 Charles Rotblood. This is Masters in Business with Barry Ridholds 0:02:01.480 --> 0:02:06.480 on Bloomberg Radio. My special guest this week is Charles Rotblood. 0:02:06.800 --> 0:02:10.560 He is the vice president at the American Association of 0:02:10.639 --> 0:02:16.560 Individual Investors. He's also the editor of the AII Journal UH. 0:02:16.600 --> 0:02:18.760 He's a c f A, and he is the author 0:02:19.200 --> 0:02:23.240 of Better Good Than Lucky, How Savvy Investors create a 0:02:23.320 --> 0:02:28.520 fortune with the risk reward ratio. Charles Rotblood, Welcome to Bloomberg. 0:02:28.639 --> 0:02:32.640 Thanks for having me so. I've been following your work 0:02:32.800 --> 0:02:36.280 for a long time. I'm a big fan of of 0:02:37.320 --> 0:02:42.799 some of the surveys that aii UH performs, Not so 0:02:42.880 --> 0:02:45.320 much the day to day or weekly things, but the 0:02:45.400 --> 0:02:51.440 longer term asset allocation number I find absolutely a compelling UH. 0:02:51.480 --> 0:02:53.200 They say you don't ring a bell, but there are 0:02:53.240 --> 0:02:56.799 times when that UM survey rings a bell. But before 0:02:56.840 --> 0:03:00.800 we get into the nitty gritty of exactly the surveys 0:03:00.840 --> 0:03:04.400 and other things you do. I told my wife I 0:03:04.480 --> 0:03:08.280 was interviewing you and I described your title and she goes, 0:03:08.520 --> 0:03:12.080 she asked me, um, well, what does he actually do? 0:03:12.200 --> 0:03:14.359 When I go, I'll ask him. So when people say 0:03:14.360 --> 0:03:16.560 to you, what do you do for a living, how 0:03:16.600 --> 0:03:18.680 do you answer that? Well? I start off by just 0:03:18.720 --> 0:03:21.440 saying a magazine editor, and that of course lets you 0:03:21.440 --> 0:03:24.440 well what magazine and who publishes that? So kind of 0:03:24.440 --> 0:03:27.440 give a long answer. But main job as I am 0:03:27.440 --> 0:03:31.960 the editor of the AI Journal, which really compels really 0:03:32.200 --> 0:03:35.640 really it's a matter of providing information about how do 0:03:35.680 --> 0:03:38.120 you invest better? Uh So we do a lot stuff 0:03:38.120 --> 0:03:39.720 in the house. I reach out to a lot of 0:03:39.760 --> 0:03:42.520 smart people on Wall Street. But in addition to that, 0:03:42.560 --> 0:03:44.920 we're focused on investor education, and part of the way 0:03:45.000 --> 0:03:49.680 we do that is we provide different model portfolios. We 0:03:49.760 --> 0:03:53.119 have a Stock Superstars Report which invests in different types 0:03:53.160 --> 0:03:55.680 of strategy, so we're diversifying by strategy, growth value and 0:03:55.680 --> 0:03:59.880 not only by industry a dividend investing portfolio. We're also 0:03:59.880 --> 0:04:02.920 no of our microcap portfolio, which is run by our chairman, 0:04:03.280 --> 0:04:07.560 Jim Cluton at Investor Microcap Stock. So part editorial, part 0:04:07.800 --> 0:04:11.120 portfolio management, and also just a lot of speaking to 0:04:11.200 --> 0:04:14.320 people and and for people who may not be familiar 0:04:14.360 --> 0:04:17.320 with A I I. You're a nonprofit, you have a 0:04:17.400 --> 0:04:20.520 hundred and seventy thousand members. Is that about right? That's right? 0:04:20.880 --> 0:04:25.039 And essentially you guys have been around for over thirty years. 0:04:25.080 --> 0:04:27.560 Is that about right? Yeah, we actually started in nineteen seventies. 0:04:27.800 --> 0:04:31.800 We are actually started by Jim Clunen, who's who is 0:04:31.839 --> 0:04:34.320 a professor de Paul and he's still still at the office. 0:04:34.320 --> 0:04:39.440 Saw him on Monday. So now we know what AIII 0:04:39.560 --> 0:04:42.480 is and we know it does um. I think you 0:04:42.520 --> 0:04:48.440 guys are actually one of the largest successful subscriber newsletters 0:04:48.480 --> 0:04:51.880 that really doesn't specialize in making forecasts. Is that a 0:04:51.880 --> 0:04:54.680 fair statement? Yeah, it is. We don't. We do not 0:04:54.760 --> 0:04:57.760 make any market forecasts. We actually think people overall are 0:04:57.800 --> 0:05:01.440 better offically just didn't make any forecasts because the tendencies 0:05:01.440 --> 0:05:03.520 to have this confidence. So I'm saying this with isis 0:05:03.560 --> 0:05:06.359 I'm saying this with China. You don't worried about Janet Yellen. 0:05:06.440 --> 0:05:09.680 And the reality is it doesn't matter what the market's 0:05:09.680 --> 0:05:12.920 gonna do next week. It really matters when you're ninety, 0:05:13.080 --> 0:05:14.919 do you still have cash in your account that you 0:05:14.920 --> 0:05:17.080 can live in, and it's very hard for people to 0:05:17.160 --> 0:05:20.520 lose sight of that because that doesn't necessarily grab headlines. 0:05:20.640 --> 0:05:23.240 But as an individual investor, your goal is to really 0:05:23.240 --> 0:05:25.880 get to your last day and still have still have 0:05:25.960 --> 0:05:28.800 at least a dollar in your bank account. And let's 0:05:28.800 --> 0:05:34.440 talk about your membership. Who who's a typical AII member, Well, 0:05:34.480 --> 0:05:38.800 we care individual investors are. Average member is in the sixties, affluent, 0:05:38.960 --> 0:05:42.240 college educated, and that's really demographic. If you talk to 0:05:42.240 --> 0:05:45.640 a morning Star about their consumer division, look at various 0:05:45.640 --> 0:05:48.719 investment newsletters, it's it's all pretty much the same demographic. 0:05:48.760 --> 0:05:50.440 And I would love to get people in their twenties 0:05:50.440 --> 0:05:53.000 and thirties and involved because we could help them so 0:05:53.080 --> 0:05:56.000 much at such a young age. But in general, even 0:05:56.000 --> 0:05:58.400 when I said invest hoals in Zack previously, it always 0:05:58.440 --> 0:06:01.240 tended to be older men and who could clean, who 0:06:01.320 --> 0:06:04.160 actually had built wealth over their life for their careers. 0:06:04.960 --> 0:06:07.479 That tends to be the key demographic for really any 0:06:07.560 --> 0:06:11.400 individual investor type of newsletter or service. Well, if you 0:06:11.440 --> 0:06:14.480 want more millennials, you have to make your acronyms sound 0:06:14.520 --> 0:06:17.599 less like a r P. I think they see a 0:06:17.720 --> 0:06:19.600 A and they don't even get to the I I fart. 0:06:19.680 --> 0:06:23.440 They just see that and uh and run. You mentioned 0:06:23.520 --> 0:06:27.360 morning Star. Who do you guys consider your your competitors. 0:06:27.360 --> 0:06:31.160 Who's out there, if not an identical space, who's who's 0:06:31.160 --> 0:06:33.960 in a similar space to a AI. Yeah, there really 0:06:34.040 --> 0:06:36.200 isn't one. I mean morning Star on us do overlap. 0:06:36.240 --> 0:06:39.000 We have some competitive products, but then we have a 0:06:39.000 --> 0:06:42.200 lot of people from the organizations. I think Christine Ben's 0:06:42.240 --> 0:06:44.719 talks to more of our members than I do. Uh. 0:06:44.760 --> 0:06:47.159 But you know, better investings out there they do education, 0:06:47.360 --> 0:06:50.800 though they're more focused on investment clubs UM and they 0:06:50.800 --> 0:06:53.480 have their own stock picking system. We're really the only 0:06:53.600 --> 0:06:58.760 organization that's really focused on comprehensive investment education out there, 0:06:58.800 --> 0:07:02.360 at least that I'm aware of. And you know, UM. 0:07:02.520 --> 0:07:05.800 I interviewed Dr Robert Johnson, who was at the c 0:07:05.960 --> 0:07:09.520 FA Institute and is now president of the American College 0:07:09.520 --> 0:07:14.440 of Finance, and he's another person who advocates for investor finance. 0:07:15.240 --> 0:07:20.560 But I'm starting to wonder how successful investor education can be. 0:07:20.640 --> 0:07:23.680 It seems like people make the same mistakes over and 0:07:23.720 --> 0:07:27.520 over and over. Can we ever really reach a critical 0:07:27.560 --> 0:07:30.720 mass of people? Uh? And and prevent them from shooting 0:07:30.720 --> 0:07:33.400 themselves in the foot. You know, I'd like to do that. 0:07:33.480 --> 0:07:36.080 I think it's always gonna be hard because people are 0:07:36.120 --> 0:07:39.320 always being torn in different directions. There's always gonna be services. 0:07:39.800 --> 0:07:41.640 Do this now that make money, do that now they 0:07:41.720 --> 0:07:44.840 make money. I'm in just a pure emotions when I speak. 0:07:44.880 --> 0:07:47.360 One of the very first slides I show actually has 0:07:47.360 --> 0:07:50.440 a quote from Charlie Ellis who said, as in Driving, 0:07:50.440 --> 0:07:53.520 the secret, the secret to success is avoiding the big mistakes. 0:07:53.520 --> 0:07:55.280 And I tell people, if you want to make a 0:07:55.280 --> 0:07:57.760 lot of money in the markets, just don't screw up. 0:07:57.800 --> 0:08:00.720 And if you avoid those behavioral errors that cause you 0:08:00.760 --> 0:08:03.080 to make a big mistake, that's gonna put you a 0:08:03.160 --> 0:08:06.040 light years aheavy game. But it's easier said than done. 0:08:06.200 --> 0:08:08.240 So in the last minute, we have in this segment, 0:08:08.560 --> 0:08:12.400 what is one of the biggest errors that investors make? 0:08:12.720 --> 0:08:15.200 You know, I think it's really panicking and selling at 0:08:15.200 --> 0:08:18.120 the wrong time, Panicking when there's a bear market, panicking 0:08:18.160 --> 0:08:20.480 when it's a market correction. Because when people do it, 0:08:20.960 --> 0:08:22.680 they just tend to stay out with the market too 0:08:22.680 --> 0:08:25.360 long and they basically lock in losses and miss out 0:08:25.440 --> 0:08:28.680 on the chance to recoup those losses. I'm Barry Ridhults. 0:08:28.760 --> 0:08:32.120 You're listening to Masters in Business on Bloomberg Radio. My 0:08:32.200 --> 0:08:36.080 special guest today is Charles Rotblood. He is vice president 0:08:36.200 --> 0:08:40.719 and editor of the American Association of Individual Investors as 0:08:40.760 --> 0:08:44.320 well as the a ai I Journal. I wanted to 0:08:44.360 --> 0:08:47.280 talk a little more about some of the sentiment measures 0:08:47.320 --> 0:08:52.360 that ai I does. Probably the most famous one is 0:08:52.400 --> 0:08:56.040 the weekly sentiment measure. Tell us about that? Sure? So 0:08:56.080 --> 0:08:58.160 we started this in eighty seven and we ask our 0:08:58.200 --> 0:09:01.439 members a very simple question. Over the next six months, 0:09:01.480 --> 0:09:05.840 I feel the market will be up, bullish, unchanged, neutral, down, 0:09:05.920 --> 0:09:08.880 bearish UH. And we've tracked this weekly and we've seen 0:09:09.160 --> 0:09:12.720 since eighty seven seven, and we've seen over time, when 0:09:12.880 --> 0:09:15.720 you know, near peaks, bull sentent hits very high levels. 0:09:16.320 --> 0:09:20.360 During bear markets hits very low levels. March five, two 0:09:20.400 --> 0:09:23.320 thousand nine, right at the very bottom of the bear market, 0:09:23.679 --> 0:09:27.400 bullish sentiment was below UH. And what's interesting about is 0:09:27.400 --> 0:09:30.079 everyone focuses on a weekly changes, but it's really when 0:09:30.160 --> 0:09:33.560 it's way off kilter, when it's just way beyond the averages, 0:09:33.600 --> 0:09:36.600 that's when you have to pay attention, particularly bull sentiments. 0:09:36.800 --> 0:09:40.160 When I've looked at it, eliminated all hindsight, when you 0:09:40.160 --> 0:09:44.040 see bull sement unusually low optimistic levels, and you would 0:09:44.080 --> 0:09:47.079 say below is how often does it hit that? Then 0:09:47.240 --> 0:09:49.840 not very often, not very many times in the history 0:09:49.880 --> 0:09:53.160 of the survey. So so the really you're you're looking 0:09:53.160 --> 0:09:57.439 to more or less that's interesting, the noisy week to 0:09:57.520 --> 0:10:02.080 week stuff, But where really is in an vestable decision 0:10:02.120 --> 0:10:04.520 is when it reaches the extreme. Yeah, And the other 0:10:04.559 --> 0:10:06.480 thing that's interesting, and I'm curious to see what's gonna 0:10:06.480 --> 0:10:07.960 happen now because we've seen it a lot of the 0:10:08.000 --> 0:10:11.000 last twelve months. But when neutral sentiments a way above 0:10:11.080 --> 0:10:14.800 its average that's also been correlated with rising markets. Has 0:10:14.840 --> 0:10:18.160 that happened previously. It's happened previously, but it's mostly prior 0:10:18.200 --> 0:10:20.960 to two thousand and so. Now over the last year, 0:10:20.960 --> 0:10:23.680 we've had several readings with it being unusually high, and 0:10:23.800 --> 0:10:25.240 kind of will let I want to let things play 0:10:25.280 --> 0:10:28.040 out to say, do we now see this correlation pop 0:10:28.120 --> 0:10:31.199 up again? It's not causal, but there's certainly a correlated 0:10:31.240 --> 0:10:36.160 link between sentiment being very off and the market's changing direction. 0:10:37.760 --> 0:10:41.320 That's that's quite interesting. So that's consistent with what I 0:10:41.440 --> 0:10:45.240 know about um sentiment. You really want to take a 0:10:45.480 --> 0:10:49.200 take a notice when it reaches um, when it reaches 0:10:49.200 --> 0:10:53.160 an extreme. So that raises the question of of when 0:10:53.200 --> 0:10:56.880 we have a whole lot of bullishness um or very 0:10:56.960 --> 0:11:03.559 little bullishness. Are these sort of booms and bus bubbles 0:11:03.600 --> 0:11:07.120 and and collapses? Is this the inevitable fate of markets? 0:11:07.160 --> 0:11:11.000 This is this just the way human beings behave? Yeah? Unfortunately, 0:11:11.000 --> 0:11:13.079 I think so. We just we tend to be greedy 0:11:13.080 --> 0:11:17.120 by nature, we tend to be risk adverse, and everyone thinks, well, 0:11:17.240 --> 0:11:19.120 risk of version means I'm afraid to lose money, but 0:11:19.160 --> 0:11:21.920 it also means you're afraid of not making money when 0:11:21.920 --> 0:11:24.240 you see everybody else making money. So read is just 0:11:24.280 --> 0:11:26.600 the inverse a panic? Yeah, absolutely, And you know it's 0:11:26.600 --> 0:11:29.120 just human nature. And we have very short histories. We 0:11:29.200 --> 0:11:32.440 have volumes of market history. Anyone can pick up security 0:11:32.440 --> 0:11:35.000 analysis and read about what happened leading up to the 0:11:35.000 --> 0:11:38.760 Great Depression. But you know next, lots of exuberance, lots 0:11:38.760 --> 0:11:42.320 of lots of frothy sentiment, and people just no longer 0:11:42.320 --> 0:11:44.959 paid attention to the traditional metrics. Yeah, you know, I 0:11:44.960 --> 0:11:47.880 think if you changed probably seven words in that whole book, 0:11:48.200 --> 0:11:50.319 reprinting a two thousand you would have thought it was 0:11:50.360 --> 0:11:52.920 about the tech bubble. It's funny. Funny you say that. 0:11:52.960 --> 0:11:57.040 There's a book by Richard Wycoth written in nine and 0:11:57.120 --> 0:12:01.120 it's called called How I Trade Stocks and Ones, And 0:12:01.480 --> 0:12:07.360 the stuff he talks about are telegraph and telecom, railroads, 0:12:07.400 --> 0:12:10.160 like a handful of major industries, And you could swap 0:12:10.200 --> 0:12:14.240 out the names of the industries you couldn't tell the 0:12:14.280 --> 0:12:17.000 difference as if it was written yesterday. No one's talking 0:12:17.040 --> 0:12:20.840 about telegraph. But if you swap telephone and telegraph for Internet, 0:12:21.200 --> 0:12:22.960 you would not be able to tell the difference. It's 0:12:23.000 --> 0:12:27.439 the exact same narrative. It's quite fascinating. Um So, so 0:12:27.559 --> 0:12:31.200 the next question, the related question to this is given 0:12:31.280 --> 0:12:34.800 that these booms and bus are inevitable, given that we're 0:12:34.840 --> 0:12:38.160 always gonna have bubbles, we're always gonna have crashes, how 0:12:38.200 --> 0:12:40.959 should investors deal with their own emotions? How do they 0:12:41.040 --> 0:12:44.000 deal with fear and greed? You know? I think that's 0:12:44.000 --> 0:12:46.840 where it ties into weight loss, where they talk about triggers, 0:12:46.880 --> 0:12:48.800 something that prompts you to eat, and I think people 0:12:48.880 --> 0:12:51.040 need to be aware what promps you to trade and 0:12:51.080 --> 0:12:54.839 setting up barriers. I I personally advocate for rebalancing because 0:12:54.840 --> 0:12:56.960 I think when you are scared or you're feeling greedy, 0:12:57.040 --> 0:13:00.199 it gives you a positive emotional outlet take in your 0:13:00.200 --> 0:13:03.560 portfolio back to your targeted allocation. So, in other words, 0:13:03.559 --> 0:13:07.680 the market has gotten she'll act, it's down where it was, 0:13:08.200 --> 0:13:10.800 and your portfolio is supposed to be making up round 0:13:10.880 --> 0:13:17.319 numbers US equities, developed x US and ten percent emerging 0:13:17.440 --> 0:13:20.280 market and all of those have moved off of those 0:13:20.800 --> 0:13:24.960 preset measures. By rebalancing, you mean you're gonna sell a 0:13:24.960 --> 0:13:27.760 little bit of everything else that's run up and move 0:13:27.880 --> 0:13:33.960 these allocations to their previous levels. So if you're supposed 0:13:33.960 --> 0:13:37.360 to be US and now it's twenty seven, you're gonna 0:13:37.360 --> 0:13:39.600 move it back to thirty. Yeah, And the beauty of 0:13:39.600 --> 0:13:42.000 it is two things. A you're buying low selling, high 0:13:42.160 --> 0:13:45.440 proven strategy, but you're also giving yourself back that sense 0:13:45.480 --> 0:13:48.560 of control where okay, this is going on, and here's 0:13:48.600 --> 0:13:50.520 something I can actually do and I know why I'm 0:13:50.559 --> 0:13:53.720 doing it, and that alone, from emotional standpoint, I think 0:13:53.760 --> 0:13:56.160 can help people a lot. It's certainly not the only way, 0:13:56.640 --> 0:13:59.600 but I like it. From a behavioral standpoints quite quite 0:13:59.600 --> 0:14:02.959 interesting thing. Um, anytime people can do something that doesn't 0:14:02.960 --> 0:14:05.719 shoot themselves in the foot, especially when they're dealing with 0:14:05.760 --> 0:14:09.280 their own emotions. Uh, is a really really good thing. 0:14:09.800 --> 0:14:12.800 Let's let's talk a little bit about valuations. Are our 0:14:12.960 --> 0:14:16.840 US markets expensive, cheap or fairly valued? You know, I 0:14:16.880 --> 0:14:19.840 think they're fairly valued when you look at it. Obviously, 0:14:19.840 --> 0:14:22.440 the big question is do we get earnings and revenues growth? 0:14:22.520 --> 0:14:25.520 And that that's a big question. Uh. If we don't 0:14:25.560 --> 0:14:28.240 get earnings, we don't get revenue started up, then obviously 0:14:28.280 --> 0:14:30.800 we can make an argument that stocks are of our valued. 0:14:31.320 --> 0:14:34.920 But I think right now they're probably fairly valued. Um. 0:14:35.040 --> 0:14:36.920 And you know, some people can point to CAPE saying, well, 0:14:36.960 --> 0:14:38.920 that's out of whack, but but that's been out of 0:14:38.960 --> 0:14:41.520 whack for a long time. Yeah, we actually decades out 0:14:41.560 --> 0:14:43.800 of whack. Yeah, we actually are giving an investing portflow. 0:14:43.800 --> 0:14:45.920 We actually just the numbers and thought, okay, what if 0:14:45.920 --> 0:14:49.120 we start out when races first started being raised. Uh back, 0:14:49.160 --> 0:14:52.040 I guess twenty years ago. I started when started peaked, 0:14:52.040 --> 0:14:55.160 they started coming back down from two, and we looked 0:14:55.160 --> 0:14:57.360 at the CAPE from there and based on that measure, 0:14:57.400 --> 0:15:00.000 it's about average. So if you figure, okay, we're an 0:15:00.000 --> 0:15:03.400 slow interest rate environment, it makes sense if you really 0:15:03.400 --> 0:15:06.400 are convinced the Fed's gonna raise rates and every four 0:15:06.480 --> 0:15:09.320 days aggressively, right, and every forecast about that's been wrong 0:15:09.360 --> 0:15:12.040 for six years running. Now. Uh, you know, it's it's 0:15:12.040 --> 0:15:15.440 hard to argue that stocks are expensive on that measure. 0:15:15.520 --> 0:15:18.200 What do you think is a good measure evaluation for 0:15:18.680 --> 0:15:22.040 the average individual investor? Yeah, I think on an average 0:15:22.080 --> 0:15:24.400 level looking at stocks, UM, I like price the book. 0:15:24.440 --> 0:15:27.000 I think price earnings a price of sales from the 0:15:27.080 --> 0:15:30.200 market overall. Uh, the pe is just good because it's 0:15:30.200 --> 0:15:32.560 so easy to find and it's just out there. I'm 0:15:32.680 --> 0:15:35.160 very rid helps you're listening to Masters in Business on 0:15:35.200 --> 0:15:38.200 Bloomberg Radio. My guest this week is Charles Rotblood. He 0:15:38.280 --> 0:15:41.000 is a vice president at the A A I I 0:15:41.960 --> 0:15:47.560 out of Chicago, a nonprofit association of individual investors. I 0:15:47.640 --> 0:15:52.760 mentioned earlier the A A II Acid Allocation Survey, which 0:15:52.800 --> 0:15:57.680 I've been a big fan of, mostly because it only 0:15:57.800 --> 0:16:03.640 makes really significant CAN readings on rare occasions. So first 0:16:03.840 --> 0:16:07.560 let's talk about the survey itself. Tell us about the survey. 0:16:07.600 --> 0:16:10.120 What do you ask people and how often are you 0:16:10.160 --> 0:16:12.400 asking it? Can we do the survey monthly and we 0:16:12.480 --> 0:16:16.480 ask members how much your alacane, the stocks, stock funds, bonds, 0:16:16.640 --> 0:16:20.880 bond funds, and cash. We've done it since seven. We've 0:16:20.920 --> 0:16:23.240 occasionally had people asked, we'll want to include gold, why 0:16:23.240 --> 0:16:26.720 don't you add real estate commodities? Yeah, and our reason is, well, 0:16:26.760 --> 0:16:29.400 we have this history that's been pretty stable that we 0:16:29.440 --> 0:16:32.560 can now compare it against, so to update it, we'd 0:16:32.560 --> 0:16:36.800 lose all that long term records. Yeah, what's the average 0:16:36.960 --> 0:16:41.120 long term history? What is the typical equity exposure stocks 0:16:41.120 --> 0:16:46.080 and stock funds that you get from UM your AII members. 0:16:46.200 --> 0:16:50.760 It's been so about six and I've noticed that there 0:16:50.760 --> 0:16:57.720 are times where it's significantly underweight as well as significantly overweight, 0:16:58.200 --> 0:17:02.440 But it only reaches these streams on rare occasions. In fact, 0:17:02.920 --> 0:17:06.000 you could go back to it was really at a 0:17:06.160 --> 0:17:10.879 very very low level, as overboard as I've ever seen 0:17:10.920 --> 0:17:14.280 it in in later oh two it was back to 0:17:14.320 --> 0:17:17.960 those levels early ninety levels, and then again in O 0:17:18.160 --> 0:17:21.840 nine was the lowest I've ever seen it UM. So 0:17:21.880 --> 0:17:24.960 that's what five four or five signals over over thirty 0:17:25.040 --> 0:17:30.440 years is. This is essentially the intention of the allocations survey. 0:17:30.560 --> 0:17:33.359 Very rarely does it reach those extremes. Yeah, Well, we 0:17:33.359 --> 0:17:35.600 serve our members, and we started just because no one 0:17:35.600 --> 0:17:37.760 else was tracking it? How are you allocating it? So 0:17:37.880 --> 0:17:41.520 we look at more as information, but should certainly coincides 0:17:41.560 --> 0:17:43.840 where he sees the market peaks in these market bottoms 0:17:44.280 --> 0:17:46.800 where people adjust their portfolios, and part of it's just 0:17:46.880 --> 0:17:50.400 portfolios dropping, but part of it, even though we encourage 0:17:50.400 --> 0:17:52.159 our members to be long term, they get to the 0:17:52.200 --> 0:17:55.399 point where fear takes over, our greed takes over, and 0:17:55.440 --> 0:17:59.159 their portfolio goes to extreme levels. So how did the 0:17:59.200 --> 0:18:01.959 survey come ab out? Was it simply, Hey, no one 0:18:02.000 --> 0:18:04.760 else is doing this, let's just start asking our our 0:18:04.800 --> 0:18:08.040 members how they're allocated exactly. It was really a case 0:18:08.080 --> 0:18:11.040 where we just didn't feel like anybody was giving voice 0:18:11.040 --> 0:18:14.040 to individual investors. And that's what really started the sentiment 0:18:14.080 --> 0:18:16.919 survey and the ass allocation survey. Let's give our members 0:18:16.920 --> 0:18:19.960 a voice. Let's actually figure out what they're doing and 0:18:20.040 --> 0:18:22.680 let them explain to everybody else this is what I'm 0:18:22.680 --> 0:18:25.679 actually doing, versus having people, you know, guests as to 0:18:25.960 --> 0:18:29.760 how the individual investors reacting. So you know, we've only 0:18:29.800 --> 0:18:34.640 seen four really extreme um overboord er oversold signals going 0:18:34.680 --> 0:18:37.960 back to you can even say was a was a 0:18:38.040 --> 0:18:42.880 fairly over oversold signals. So let's call it five. Where 0:18:42.920 --> 0:18:46.719 where is the allocation model today? You know, it's pretty 0:18:46.760 --> 0:18:49.320 close to average. Stocks have been running a little bit 0:18:49.400 --> 0:18:52.200 of average, but they're still in a low sixties. Uh. 0:18:52.240 --> 0:18:55.080 And the one thing I hear consistently from our members 0:18:55.800 --> 0:18:58.119 as I can't get any interests, I can't get any yield. 0:18:58.600 --> 0:19:00.440 A lot of our members because they were hire res 0:19:00.480 --> 0:19:02.960 or their near retirement, they're thinking about I need cash, 0:19:03.040 --> 0:19:04.840 I need want to earn something in my cash. So 0:19:05.320 --> 0:19:07.159 I do think there's a lot of investors who are 0:19:07.680 --> 0:19:10.479 either holding cash are investing in stocks because they just 0:19:10.600 --> 0:19:13.440 don't like bonds and they're frustrated with low interest rates 0:19:13.440 --> 0:19:17.080 and they're fearful at some point rates will rise, even 0:19:17.080 --> 0:19:20.119 though that fair has been around for a while. Now, Well, 0:19:20.320 --> 0:19:23.280 I have to think that eventually rates are gonna rise, 0:19:23.400 --> 0:19:25.720 but you don't know when that eventually is going to be, 0:19:26.359 --> 0:19:29.600 and you need the income. Now that that's why they've 0:19:29.640 --> 0:19:33.359 invented bond ladders, so you can basically, as rates go up, 0:19:33.440 --> 0:19:37.040 you sell the most recent year and and reinvested that. 0:19:37.040 --> 0:19:40.760 That should be a fairly standard approach for most bond investors. 0:19:40.760 --> 0:19:42.800 Shouldn't it be. Yeah, it should be. And even if 0:19:42.800 --> 0:19:45.240 somebody doesn't want to own bond funds, they can buy 0:19:45.320 --> 0:19:48.600 there's bullet shairs, which basically our bond ladder funds that 0:19:49.119 --> 0:19:51.520 mature a certain dates. So there's certainly options are you 0:19:51.560 --> 0:19:54.400 could even do it with CDs. Uh even I think 0:19:54.400 --> 0:19:55.879 a lot of people just look at that low interest 0:19:55.960 --> 0:19:57.840 rates and they have a hard time. They can good, 0:19:57.840 --> 0:20:00.159 I'm gonna get one percent of my interest are one 0:20:00.160 --> 0:20:02.600 and a half percent interest and it's hard conceptually to 0:20:02.640 --> 0:20:05.760 figure that out. But they're not thinking, yeah, you're not 0:20:05.760 --> 0:20:08.480 getting paid any interest, but you're also not going to 0:20:08.600 --> 0:20:13.360 lose any money. So so let's talk about the divon investing. 0:20:13.400 --> 0:20:16.080 As long as we're talking about field, you guys have 0:20:16.359 --> 0:20:18.720 in the last minute we have you have the Dividend 0:20:18.840 --> 0:20:23.920 Investing newsletter. I keep hearing from individuals that they're looking 0:20:23.960 --> 0:20:27.520 at dividend stocks as a bond substitute. Are you are 0:20:27.520 --> 0:20:30.720 you hearing anything like that? And what is the dividend 0:20:30.800 --> 0:20:34.040 Investor letter? Like, Yeah, we do, but definitely here about that. 0:20:34.119 --> 0:20:37.160 We hold twenty four dividend paying stocks. We focus on 0:20:37.320 --> 0:20:40.679 growth and low evaluations, so I do think they can 0:20:40.720 --> 0:20:43.919 supplement income. But I think investors need to view bonds 0:20:43.920 --> 0:20:45.800 as this is what I want to use for safety, 0:20:46.160 --> 0:20:48.600 to protect my short term assets, and maybe dip into 0:20:48.680 --> 0:20:51.359 when I need to buy stocks on a dip, versus 0:20:52.359 --> 0:20:54.800 as solely the sources of income. And I think dividends, 0:20:54.840 --> 0:20:57.840 particularly for retired investor can help. But even for someone 0:20:58.080 --> 0:21:01.040 away from retirement, you know, you're just basically juicing the 0:21:01.080 --> 0:21:03.359 game because you get the increasing in your stock price 0:21:03.720 --> 0:21:05.480 and then you're in cash on the side that you 0:21:05.520 --> 0:21:08.760 can then reinvest in stocks and obviously get more dividends 0:21:08.920 --> 0:21:12.480 from doing that reinvestment. I'm Barry Reholts. You're listening to 0:21:12.600 --> 0:21:15.879 Masters in Business on Bloomberg Radio. My special guest this 0:21:15.920 --> 0:21:19.639 week is Charles Rodblood. He is vice president at the 0:21:19.680 --> 0:21:23.919 American Association of Individual Investors. He is also the author 0:21:24.000 --> 0:21:27.320 of Better Good Than Lucky, How Savvy Investors can create 0:21:27.359 --> 0:21:31.400 a fortune with the Risk Reward Ratio, as well as 0:21:31.720 --> 0:21:35.760 editor of the a AII Journal. So we've been talking 0:21:35.760 --> 0:21:40.040 a lot about sentiment and what it means for investing. 0:21:40.600 --> 0:21:43.080 Let's let's get into a little more of the details 0:21:43.560 --> 0:21:48.800 the segment. How important is sentiment analysis to the average 0:21:48.840 --> 0:21:52.640 stock market investor? Yeah, I think it provides some colors 0:21:52.680 --> 0:21:55.040 to what's going on. Um. I definitely think it can 0:21:55.080 --> 0:21:58.680 be an alert to go look closer, particularly if you 0:21:58.720 --> 0:22:01.280 see sentiment being way off, that should be a signed 0:22:01.400 --> 0:22:04.399 what else is going on. I don't think sentiment initially 0:22:04.480 --> 0:22:07.760 higher low drive stock prices in the other direction, but 0:22:07.840 --> 0:22:10.480 it's usually assigned there's some other things going on. Maybe 0:22:10.520 --> 0:22:14.040 evaluations are too high, maybe evaluations too low. Maybe there's 0:22:14.040 --> 0:22:16.639 too much fear being priced into the market. Uh So 0:22:16.680 --> 0:22:18.520 I think it's a good alert to take a step 0:22:18.560 --> 0:22:21.320 back and start looking at the broader forests instead of 0:22:21.359 --> 0:22:25.120 focusing on one tree and asking yourself, have things swung 0:22:25.280 --> 0:22:31.080 too far? And what's causing them to swing too far? Interesting? Um? 0:22:31.160 --> 0:22:35.960 And relevant to this. When do you think sentiment analysis 0:22:36.000 --> 0:22:39.760 works best. Is it something that's just there in the 0:22:39.760 --> 0:22:43.159 background for color, or is there time where it seems 0:22:43.200 --> 0:22:45.360 to be more astute than others? You know, I think 0:22:45.359 --> 0:22:47.560